Investment legend Michael Novogratz, the $3.2 bln investor and former manager of the multi-billion dollar investment firm Fortress, recently stated that the cryptocurrency market will be worth $5 trillion by 2022.

Preaching crypto optimism

Over the past two years, Novogratz has expressed his optimism towards cryptocurrencies such as Bitcoin and Ethereum that have been leading the $100 bln cryptocurrency market. Previously, Novogratz revealed that 10 percent of his net worth, at least hundreds of millions of dollars, are invested in a diverse portfolio of cryptocurrencies including Bitcoin, Ethereum and Litecoin.

Bitcoin has transformed into a global phenomenon within a period of years due to its decentralized and transparent nature that have made Bitcoin an efficient store of value, digital currency and safe haven asset for the vast majority of users, traders and investors.

Other successful cryptocurrencies such as Ethereum, Litecoin and Ethereum Classic have gained interest from both individual and institutional investors with their distinctive strategies, philosophies, monetary policies and purpose.

Ethereum, for instance, provides an infrastructure for decentralized autonomous organizations (DAOs) and decentralized applications (DApps), creating an intermediary-free network of applications. Ethereum Classic is more similar to Bitcoin in the sense that it has a fixed and deflationary monetary supply.

“We’re at the takeoff point”

Comparing the cryptocurrency market to the Nasdaq due to the variety of crypto-assets and Blockchain network, Novogratz explained that there exists no reason why the cryptocurrency market can’t be worth $5 trillion within the next five years.

“The Nasdaq got to $5.4 trillion in 1999, why couldn’t it be as big? There’s so much human capital and real money being poured into the space and we’re at the takeoff point,” said Novogratz.

During an interview with Bloomberg, Novogratz further emphasized that a rigid regulatory structure within the global cryptocurrency exchange market is absolutely necessary for the cryptocurrency market to evolve into a major financial market.

Already, overseas markets including Japan, China, South Korea, Australia, the Philippines, Singapore and Hong Kong along with many other countries have regulated the cryptocurrency exchange market and have provided thorough, practical and efficient regulatory frameworks to attract the general public into the cryptocurrency exchange market.

China, in particular, is heavily involved in its local cryptocurrency market and is actually planning to regulate smaller markets such as the initial coin offering (ICO) market that has gained increasing interest from investors since the beginning of 2017.

“Most cryptos will eventually be worth zero”

Evidently, the cryptocurrency market and the majority of cryptocurrencies are still in the early stages of development. As Ari Paul, portfolio manager for the University of Chicago’s $7.5 bln endowment, explains, most cryptocurrencies that are in existence are likely to decline in value while several major cryptocurrencies such as Bitcoin, Ethereum, Litecoin and Ethereum Classic survive.

“Most cryptos, like most companies, will eventually be worth zero. This is the nature of competition. Buy and hold is a strategy, not safety,” said Paul.

“All Bitcoin has to do to become the premier store of value is…survive.”

Bitcoin ‘Fraud’

Most large institutions have steered clear of the cryptocurrency market out of skepticism about its legitimacy or concerns that the mostly unregulated instruments are too volatile. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon captured the prevailing view on Wall Street when earlier this month he called bitcoin a “fraud” and said he would fire anyone at his bank for trading it.

Where others see volatility and liability, Novogratz, a former Goldman Sachs Group Inc. partner, smells opportunity.

“In a lot of ways, this is a market like any other market,” Novogratz said. “You see the psychology of fear and greed in the charts the same way you’d see it in charts of the Indonesian rupiah or dollar-yen or Treasuries. They’re exaggerated because of less liquidity and because you can’t get short.”

Novogratz developed his taste for risk as a varsity wrestler at Princeton University and later as a National Guard helicopter pilot. He dabbled in bitcoin while still managing billions of dollars in a macro fund at Fortress, but didn’t score his first big win until after leaving the New York-based firm two years ago.

It started with a late-2015 visit to a friend’s startup in Brooklyn.

“I expected to see Joe, a dog and one assistant. Instead I saw 30 dynamic young people crammed in a Bushwick warehouse, coding, talking on the phone, making plans for this revolution,” Novogratz said. “Macro guys are instinctive. My instinct was, ‘I want to buy a chunk of this company.”’

$250 Million Haul

He decided instead to invest in ether, the cryptocurrency token used on the Ethereum network. Novogratz bought about $500,000 at less than a dollar per ether and left on a vacation to India. By the time he returned a few weeks later, the price had risen more than fivefold. He bought more.

Over the course of 2016 and into 2017, as ether surged to almost $400 and bitcoin topped $2,500, Novogratz sold enough to make about $250 million, the biggest haul of any single trade in his career. He said he paid tax on the profits, bought a Gulfstream G550 jet and donated an equal amount to a philanthropic project for criminal justice reform.

Novogratz was hooked. Today, he hosts a weekly “crypto meet-up” for as many as 90 people over drinks at his office in Manhattan’s SoHo district and waxes effusive about his adopted industry.

“Remember, bubbles happen around things that fundamentally change the way we live,” he said. “The railroad bubble. Railroads really fundamentally changed the way we lived. The internet bubble changed the way we live. When I look forward five, 10 years, the possibilities really get your animal spirits going.”

Novogratz, known to his friends as “Novo,” estimates that he now has about 20 percent of his net worth in digital assets. In addition to cryptocurrencies, his family office has invested in bitcoin mining, trading platforms, initial coin offerings, pre-ICO sales and blockchain technology. He said Gemini, the exchange run by Cameron and Tyler Winkelvoss, is “one of our go-to places” in part because it has a New York State license to trade bitcoin and ether.

With a $500 million hedge fund, Novogratz will be able to capture trading opportunities that require more scale, as well as wield influence with developers, entrepreneurs and regulators. Of course, he’ll also make money on other people’s money: The person familiar with his fund, who has seen early versions of marketing documents, said it will charge investors a 2 percent management fee and 20 percent of profits, with a two-year lockup.

Plus, he doesn’t like the idea of fading away.

“Everyone would love to leave Wall Street gracefully and very few do,” Novogratz said. “You get kicked in the knees or kicked in the midsection, you learn from your mistakes, you kind of rebuild and you start your new adventure.”

One thing hasn’t changed: Novo’s love of the risky bet.

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